CREDITORS, HOSPICE GET TOGETHER ON BANKRUPTCY PLANS

Group’s Hillcrest property up for auction on April 30

Creditors agreed Wednesday to withdraw their request for a trustee to take over running San Diego Hospice after the two sides agreed to work together on selling the organization’s remaining assets and putting together a liquidation plan.

At a hearing, bankruptcy Judge Margaret M. Mann was scheduled to rule on whether to appoint a trustee to run the hospice as it moves toward auction of its Hillcrest property on April 30.

Creditors, who jointly have more than $13 million in claims against the hospice, which filed for Chapter 11 on Feb. 4, accuse its leadership of working too closely with Scripps Health to transfer patients and employees and diluting the overall value of the nonprofit. The hospice faces millions of dollars in liability due to an ongoing Medicare audit of its admissions and discharge practices.

Scripps has made the initial $10.7 million bid for the hospice’s 8-acre property, which overlooks Mission Valley and was built with an $18.5 million contribution from San Diego philanthropist Joan Kroc.

At Wednesday’s hearing, creditors’ attorney Samuel Maizel said the upcoming auction will include both sides rather than being solely under the control of hospice leadership.

“We will jointly exercise the responsibility of conducting the sale process from here on out,” Maizel said.

The two sides, he added, will try to agree on the winning bidder but will rely on Mann if they don’t.

“If we can’t agree, we’ll each present our position, and the court will pick a winner,” Maizel said.

He said the committee representing creditors will also work to draft a liquidation plan for the hospice’s assets after the sale. Hospice attorneys would then have 15 days to look the plan over and agree or disagree. If the hospice cannot agree on the plan, the creditors would be free to create a plan on their own.

It was unclear Wednesday where the U.S. Department of Justice, which is representing Medicare in the bankruptcy proceeding, stands in the agreement.

A DOJ attorney participated by teleconference in the first part of the hearing, but did not return after recess to provide a thumbs up or thumbs down.

The government recently indicated it will bring its own claim against the bankruptcy estate, noting that the hospice itself has estimated it may have to return $50 million or $60 million to Medicare.

Because claims are paid on a prorated basis, the government has a potential to significantly dilute the pool of money created from liquidating the hospice’s assets, Maizel said.

“Hopefully we’ll be able to reach some kind of agreement with the government so that they don’t completely swamp the unsecured creditors, but, if I can’t, then there’s always the possibility of litigation,” Maizel said.